What method of inventory valuation is it when the cost of inventory is defined as the amount that an entity would have to pay to replace its existing inventory?
A)Replacement cost
B)Net realizable value
C)Average cost
D)FIFO

Question

Quizplus · Accepted Answer

Replacement cost method values inventory based on the cost to replace it at the current market value. This method is useful when inventory costs are constantly fluctuating, and it provides a more accurate representation of the true value of inventory. Net realizable value method subtracts the costs of finishing, marketing, and selling goods from their estimated selling price, and is commonly used for inventory that has become obsolete or damaged. Average cost is a method that takes the average cost of all units of inventory, and it is commonly used when inventory costs are relatively stable. FIFO method assumes that the first inventory purchased or manufactured is sold first, and it is commonly used when inventory costs are rising.

What Method of Inventory Valuation Is It When the Cost